London lower as financials weigh

BT gains ground as lower pension fund liabilities eyed

By

SarahTurner

LONDON (MarketWatch) -- The London benchmark ended lower on Monday, with financials among decliners after a surprisingly strong report on retail sales rekindled interest-rate concerns locally, and with declining U.S. markets also pressuring stocks.

The FTSE 100 (UKX) index declined 0.55%, or 34 points, to end at 6,098.

U.S. stocks also were pressured, in part over weak dollar concerns. See story.

While the pound was a touch lower against the U.S. dollar, rate expectations were pushed higher after U.K. retail sales climbed 0.7% in March, a figure that was higher than forecast, leading some to fret about where the Bank of England will take rates.

Banking sector heavyweights such as HSBC
HBC, +0.07%
(HSBA) and Royal Bank of Scotland (RBS) traded more than 1% lower in London, and insurers Old Mutual (OML), Prudential plc (PRU) and Legal & General (LGEN) also closed lower.

Telecom BT Group
BT.A, -1.49%
(BT.A) was an exception, gaining 2.1%. It has delayed the release of a major study into its pension-fund deficit, but confirmed that the British government will guarantee an estimated 75% of its multi-billion pound deficit fund liabilities. See full story.

The European telecom sector generally was lifted after The Blackstone Group bought a minority stake in Deutsche Telekom. See full story.

Outside the benchmark, food producer RHM (RHM) rose 2% after saying it expects to report annual results in line with expectations, after an improved second-half performance.

The company, which makes Hovis bread, Bisto gravy, Mr Kipling cakes and Sharwood's curry products, said sales from ongoing operations are expected to rise by around 2% over last year, while adjusted operating profit on a continuing basis is expected to exceed 170 million pounds.

Music to the ears?

Bid speculation resurfaced outside the benchmark index, with both music company EMI (EMI) and music and book retailer HMV (HMV) in the spotlight.

EMI added 5.6% after the Sunday Times newspaper reported, without citing sources, that EMI executives and U.S.-based Warner Music Group are set to resume merger talks.

EMI has appointed Citigroup and UBS as advisors, while Goldman Sachs and Lehman Brothers will assist Warner, the newspaper reported.

HMV gained 3.9% after Tim Waterstone, the founder of the Waterstone's book chain, said that he was willing to pay up to 280 million pounds to buy the book group back from HMV.

A bid for Waterstone's is subject to HMV not acquiring or offering to acquire rival book chain Ottakar's (OKR), the bidders said. Ottakar's shares dropped 2%

"Our money is on this approach being rejected, despite it being at almost 12 times earnings before interest and tax for the year just ending," said analysts at Seymour Pierce.

Meanwhile, Wolfson Microelectronics (WLF), which makes semiconductor parts for the Apple Computer's iPod, rose 11.9% after it said that its first-quarter net profit rose to $7.7 million, from $2.5 million a year ago.

Sales increased to $45.9 million, from $30.4 million, after portable segment revenue climbed 84% to $32.2 million with strong growth from the portable music player market. The group also noted that sales for mobile phone applications rose sequentially.

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